Why I think Tesla Q1 performance is at rock bottom.

The most important thing when forecasting expected sales/profit is direction. Whether sales or profit or loss will continue to fall, turnaround, or continue to grow… No one can match what sales/profit will be, and it means nothing to match sales/profit. Even if you get it right, that’s because it’s luck. It’s almost impossible for even the finance team inside the company to match the sales/profit every time for the month. So what about people outside? Is it possible to predict sales/profit accurately with a very well-refined and limitedly informative quarterly/year report? No, I’m sure. However, with a comment in the quarterly/year report provided by the company, at least direction can be seen. So, when I predict sales/profit, I only judge that direction.

The figure below is a table comparing performance in the first quarter with performance in the same period last year.
Why the operating margin fell -5.9%p to 11.4% in 23 years -> 5.5% in 24 years

1. ASP fell -4.7% in the same period last year, but the cost of sales per unit fell only -1.5%. As a result, the cost of sales fell by -2.0%p. According to the quarterly report, the reason why the cost of sales per unit fell only -1.5% was due to the decrease in sales due to delayed delivery despite the decline in material and transportation costs, and the high manufacturing cost of the Refreshed Model 3 at Cybertruck and Freement factories.
2. R&D ratio to sales increased by 2.1%p. According to the quarterly report, the main reason was the increase in investment in AI, battery cells, and other programs.
3. The ratio of SG&A to sales also increased by 1.8%. According to the quarterly report, labor costs accounted for 59%, facility costs 21%, and advertising costs 14% among the main reasons for the 28% increase in SG&A costs.

Based on the quarterly report, predicting the direction of the second quarter,
(Excluding the cost effect of the Severance Package)

1. Vehicle sales are currently expected to be at least 400K.
2. So, what happens to the cost of sales? Of course, it’s bound to fall. The factor is
   ✅ Even if there is no reduction in material cost compared to the first quarter, the fixed ratio to sales decreases due to the increase in volume compared to the first quarter
   ✅ Cost rates fall due to increased production of Cybertruck and Fremont Highland
   ✅ Reduced labor costs due to workforce reduction
3. Overhead cost ratio to sales is also bound to fall.
   ✅ R&D costs are mostly future investment costs, which are less likely to fall in absolute costs, but are expected to decrease the fixed ratio when the volume increases due to the strong nature of fixed costs
   ✅ Since more than half of SG&A growth factors are labor costs, we believe that this workforce reduction will have the greatest impact.

Because of this, based on Yahoo Finance, 25 analysts expect operating margin to be around 8% and EPS to be 0.55, up 17% from the first quarter, when they expect second-quarter earnings.

Given Elon’s recent strong drive to cut costs, however, what if Automotive’s cost savings were greater than WS expectations, the energy business’s sales expansion was higher than they expected, and the FSD release in China or Europe was significantly higher by the end of the year? Elon Musk also said during his first quarter earnings call that this year’s sales would be better than last year. Is that really groundless? Elon has been so frank on his earnings call that there has never been a bad thing or a bad thing. I remember…

Therefore, there seems to be little reason for second-quarter earnings to be worse than first-quarter earnings or for WS to be worse than expected. Rather, it seems that it is a time when there are more positive factors. This is why I think first-quarter earnings are at rock bottom. However, the difference is whether it gets a little better or a little steeper in the short term. This is why I think first-quarter earnings are at rock bottom.